Paper 2 · November 2019 · Process Costing

State one use of absorption costing in a manufacturing business.

AValuing closing inventory at full production cost

BDeciding how much cash the business should hold

CWorking out the tax due on a dividend payment

DMeasuring the interest cover on a debenture

Explanation

Absorption costing charges a share of production overhead to every unit, so it gives the full production cost that inventory and work in progress must be valued at, and a cost that a selling price can be built on.

Derived from ZIMSEC Accounting 6001/2 Paper 2, November 2019, Q1

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